How Do I Get a Mortgage After Bankruptcy & Foreclosure?

With some effort, it is possible to qualify for a mortgage within a few years of a bankruptcy or foreclosure.

You can usually qualify for a new mortgage within two years of bankruptcy and three years of a foreclosure discharge date. After discharge, work diligently to rebuild your credit, which can potentially be hit as much as 120 points. It isn't uncommon to be able to meet new credit requirements within the two- to three-year time frame if you keep your credit clean.

Seasoning Time Frame

The time that passes from the discharge date to loan application is called seasoning. A Chapter 7 bankruptcy discharges debt, while a Chapter 13 restructures debt for a payment plan. Both of these are considered ways to wipe the slate clean on your credit report, meaning from the day of the discharge, bad debts don't continue to hurt you. They go away or are seen as timely payments. Because bankruptcy is often the result of a major life crisis or hardship, it may or may not affect losing a home. Typically, only two years of seasoning is required. A foreclosure comes directly from delinquency on a home mortgage. Lenders are reluctant to give a borrower another home mortgage until three years have passed.

Rebuild Credit

While you wait, rebuilding credit is the top priority. Get a copy of your credit report after the bankruptcy or foreclosure settles. It might not affect the credit report for 60 days. Make sure everything that should have been discharged is indeed removed from all current items per the date the judge or bank finalized the release of debts.

If you had a bankruptcy, you probably had to relinquish all your credit cards – certainly with a Chapter 7. You'll need to get one or two new ones as soon as possible, but don't apply for much credit. Your credit score might be dinged another five points with every hard credit inquiry. Even if you have a high-rate card, use it and pay it off monthly so you don't pay the interest. Your on-time and responsible use of credit will begin to rebuild your credit. Keep all other payments on time as well. This includes car payments, cellphones and student loans.

Work on Your Loan Terms

You'll need a minimum of a FICO 500 to qualify for a new mortgage. Better terms and conditions apply to those with FICO 580 and higher. Credit scores over 620 open up different loan options. Keep your debt low. Lenders look at debt-to-income to see how much home you can afford based on this ratio. Before factoring in a mortgage payment, this number should be between 29 to 41 percent depending on the loan program. The rule of thumb is the lower the ratio, the better. A bigger down payment and even a co-borrower may improve your chances for approval when you are ready to apply.

Save money. This does two things. It shows you've become a financially responsible saver, not a spender. It also prepares you for the down payment and closing costs required for the loan.

About the Author

In 2001, Kay Miranda had her second screenplay purchased, then started writing a weekly column in "The Messenger," with work appearing in "Xquisite" and "Valley Scene Magazine." Miranda earned a Bachelor of Arts in bio-psychology from the University of Colorado. Fortunate to play collegiate tennis, Miranda has extensive travel and coaching experience.